ii view: British Land back in business

The majority of its stores are now open but only a third of retail rents have yet been collected.

Operational update as of 30 June

ii round-up:

Shop and office property owner British Land (LSE:BLND) today confirmed that 64% of all its stores in England are back open following closures under Covid-19 lockdowns. 

Half of its Scottish shops and 64% of stores in Wales were also back open as of 30 June. For the first week of reopening from 14 June for non-essential shops, footfall in England reached 64% compared to the same week in 2019. Like-for-like sales totalled 91% compared to the same week last year. 

British Land shares rose by just under 1% in early UK trading having fallen by around 40% year-to-date.  Shares for rival shop and office owner Land Securities (LSE:LAND) are down around 44% during 2020. Shares of warehouse owner Segro (LSE:SGRO) are virtually unchanged in 2020. 

British Land’s shop portfolio is focused on retail parks and shopping centres, and accounts for 35% of its total assets. 

Its London campuses and standalone office buildings have remained opened throughout the virus lockdowns, although physical occupancy remains low. Government guidance continues to favour working from home wherever possible. 

Its office estate comprises of three office-led campuses in central London as well as standalone buildings and totals 60% of all assets.

As of 26 June, it had collected 88% of office rents for the June quarter and 36% of retail rents. Negotiations and assistance, including rent waivers, remain ongoing on a tenant by tenant basis. Management expects rent collection rates to improve over coming weeks. 

For the last full financial year British Land suffered a 26% drop in the value of its retail properties as shoppers now often preferred the convenience of buying online. Group Net Asset Value (NAV) per share fell by 14.5% to 774p. The dividend payment was previously suspended given the degree of uncertainty relating to the coronavirus. 

ii view:

A combination of long-term changing preferences towards online shopping, and the hit from the coronavirus, have seen retail properties accounting for a reducing proportion of its overall portfolio. Retail now accounts for 35% of its overall portfolio, down from around 45% just over a year ago. Offices on the other hand now account for 60% of the overall portfolio, up from just over 51% just over a year ago. 

Management is responding to the structural change in shopping habits. A move towards destination shopping centres with lots of parking and eating outlets was made some time ago. Now, a more focused portfolio is being pursued. It sold £296 million worth of shop outlets in its last financial year. However, management still believes there remains a place for the right kind of retail property. Assets that can play a key role for retailers in terms of fulfilment of online sales, returns and click and collect.

For investors, the potential to withstand a 45% fall in asset values before breaching banking covenants offers some comfort. A near-50% discount between the current share price and the Net Asset Value (NAV) as of late March this year is also noteworthy. But with the dividend suspended and retail rent collection rates far from normal, there appears to be no immediate rush to accumulate new holdings. 

Positives: 

• A diversity of office, retail and residential property 
• £1.2 billion of available cash and undrawn facilities as of 31 March

Negatives:

• The value of its retail portfolio fell by 26%
• Dividend payment suspended

The average rating of stock market analysts:

Hold